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The International Valuations Standards Committee adopts the Capital Asset Pricing Model as a method for estimation of the cost of equity. It has several drawbacks and appraisers in emerging markets need more useful model for cost of equity estimation. The paper aims to discuss these issues.

The proposed model is a modification of the Salomon Smith Barney model for cost of capital determination. The econometric part of the model incorporates the non-synchronous effect, the thin trading effect, the time varying risk nature, and the systematic country risk.

The model estimates the cost of equity of Bulgarian REITs more accurate than the one, who uses the traditional β estimation.

The study provides appraisers, business consultants, and investment bankers with a consistent model for cost of equity estimation. The model incorporates most of the features of emerging markets REITs return series and avoids the weaknesses of the single-factor model for cost of equity estimation in emerging markets.

The proposed model reflects the following characteristics: the degree of diversification of the particular investor (imperfectly diversified); country risk; and time-varying risk nature. The political risk is incorporated by more objective measure of the systematic country risk.

The purpose of this paper is to compare traditional methods of estimating the cost‐of‐equity (capital asset pricing model and Fama and French three‐factor model) with a new approach, implied cost‐of‐equity method, to provide lodging analysts, investors, executives and researchers with a more reliable way to estimate cost‐of‐equity.

The study uses data from publicly traded lodging firms in the USA that provide all necessary financial data for cost‐of‐equity estimation. The data range from 1976 to 2005.

The study finds that the price‐to‐forward earnings (PFE), using the implied cost‐of‐equity (ICE), approach, estimates cost‐of‐equity of publicly‐traded lodging firms more reliably, compared with CAPM.

The study recommends that lodging industry analysts, investors, executives and researchers adopt the ICE approach, especially using the PFE model, to estimate cost‐of‐equity of publicly‐traded lodging firms.

The study attempts to provide a more reliable approach to estimate cost‐of‐equity for publicly‐traded lodging firms, specifically compared with the traditional approach, the CAPM.

The purpose of this paper is to propose and test a method for selecting a portfolio of public firms which can be used for computing the cost of equity capital for a non‐public firm or division of a firm.

This method relies on cluster analysis and a large sample of firms. Using the accounting data from the firms, portfolios are formed that are expected to have a high degree of within‐group similarity on measures of systematic risk, such as beta. The average beta of the group can be used as an estimate of the beta of the target firm within the group, which is then used to compute the cost of equity capital of the target.

Cluster analysis shows significant potential to group together firms that are found to have high similarity in systematic risk. Cost of equity capital estimates made using the betas of the proxy portfolio firms are predictive of the measured betas of randomly selected target firms.

This research has shown significant predictive relationships between accounting data and market based cost of capital estimates, but the relationship is noisy, and the fit of the model could be improved with additional calibration.

This approach uses well known data and methodology, but is unique in this application. This suggests many other potentially fruitful applications may be found for cluster analysis in financial research.

The purpose of this paper is to examine the moderating effect of International Financial Reporting Standards (IFRS) adoption on the relationship between accounting conservatism and the cost of equity in Canadian environmental, social, and corporate governance (ESG) firms.

Panel data was collected using the Thomson Reuters ASSET4 database on a sample of 284 Canadian ESG companies over the period 2007–2019.

The results obtained show a negative relationship between conditional conservatism and the cost of equity. The authors also find a negative relationship between unconditional conservatism and the cost of equity. In addition, IFRS adoption moderates the relationship between accounting conservatism and the cost of equity in Canadian ESG firms.

Future studies may extend the coverage of the study by including other countries and other sectors.

The results imply that prudent accounting signals information to investors about the quality of a company’s current and future earnings. The rates of return required by investors may be higher for conservative reporting companies that are more susceptible to opportunistic management discretion.

Although the previous literature has studied the direct correlation between accounting conservatism and the cost of equity, the present work focuses on examining the direct association between accounting conservatism and the cost of equity through the moderator effect of IFRS, which has not been widely used in studies of accounting conservatism until now.

The purpose of this paper is to investigate the potential impact of the approved Australian carbon emissions reduction plan on the cost of capital and the association between companies’ carbon emission intensity and the cost of capital.

A sample of Australian Stock Exchange 200 (ASX 200)-indexed companies from 2006 to 2010 is used. Hypotheses are tested based on Heckman’s two-stage approach. Three regression models are developed to examine the association between carbon emissions and the cost of capital.

Using a sample of ASX 200-indexed listed companies, the paper finds that the cost of capital, including the cost of debt and the cost of equity, will increase for emissions-liable companies. Results also show that the cost of debt is positively correlated with a company’s emission intensity. However, little evidence supports that the emission intensity affects the cost of equity.

As it is evident that the emissions reduction plan will adversely affect corporate entities’ cost of capital, this study suggests that companies, investors and lenders need to include carbon emission in risk analysis. An emissions-liable company should establish strategies to combat the impact of the Plan on rising cost that comes with the enforcement of the Plan. Government assistance is essential in the transitional period.

The purpose of this paper is to assess how much difference it makes for US firms to use the two‐factor ICAPM to estimate their cost of equity instead of a single‐factor CAPM.

For a large sample of US companies, the authors compare the empirical cost of equity estimates of a two‐factor international CAPM with those of the single‐factor domestic CAPM and the single‐factor global CAPM.

The authors find that the cost of equity estimates of the two‐factor ICAPM are reasonably close to those of either single‐factor model for US firms with low‐to‐moderate foreign exchange exposure; and second, perhaps surprisingly, for US firms with extreme foreign exchange exposure, that the cost of equity estimates of the two‐factor ICAPM tend to be very close to those of the domestic CAPM, and even closer than to those of the single‐factor global CAPM.

The paper's findings might prove useful to academic researchers wanting to resolve the seemingly contradictory empirical results on the pricing of FX risk.

The findings will hopefully help managers decide whether they should go to the trouble of estimating a US firm's cost of equity with the two‐factor international CAPM instead of a traditional single‐factor CAPM.

The paper extends the existing literature by focusing on the two‐factor ICAPM, and finds some new and surprising empirical results.

This paper aims to investigate the extent to which corporate governance (CG) systems adopted by Latin American listed firms affect their cost of equity capital. Several studies on the link between the two aforementioned dimensions have been carried out, but none in the context of Latin American firms.

A CG index is created by taking into account the peculiarities of each country and the recommendations given by the corresponding CG institutes. In particular, to assess the level of CG quality, three sub-indexes have been identified: “Disclosure”, “Board of Directors” and “Shareholder Rights, Ownership and Control Structure”.

The results indicate a negative relationship between CG quality and the cost of equity. In particular, the “Disclosure” component is the one mostly affecting the cost of equity.

This study contributes to the literature by adding knowledge on the relationship between CG and cost of capital considering, for the first time, the overall Latin American market.

The paper proves that institutional investors all over the world are disposed to pay a premium to invest in firms with effective CG standards; moreover, this premium is higher in emerging countries such as those analyzed in this paper, rather than in developed countries.

To the authors' knowledge, this is the first paper empirically investigating the relationship between CG and cost of capital in Latin America.

The goal of this article was to look into the direct and indirect links between corporate social responsibility (CSR) activities and the cost of equity, using real earnings management (REM) as a mediator.

To test the hypotheses, the authors applied linear regressions with panel data using the Thomson Reuters ASSET4 and I/B/E/S database on a sample of 540 European companies selected from the environmental, social and governance (ESG) index over the period 2011–2019.

The results show that REM partially mediates the relationship between CSR practices and the cost of equity in European firms belonging to the ESG index.

Instead of beautifying their business, companies should make efficient managerial and organizational improvements to meet their social duty. Regulators in Europe must strive for tighter enforcement while also attempting to raise public awareness of CSR. CSR can be profitable and helpful for primary stakeholders, according to the research.

Although previous literature has investigated the direct correlation between CSR practices and the cost of equity, the present work focuses on considering the direct and indirect association between CSR and cost of equity through the mediating effect of REM, which has not been widely used in CSR studies so far.

The authors present the results of a survey on how Korean firms evaluate new projects and estimate their capital costs. The authors report how Korean firms’ capital budgeting practices compare to other developed countries and to best practices in the field of finance.

The authors survey CFOs of major Korean firms on their capital budgeting practices. The authors then compare the results against the US and European firms and best practices of leading firms and financial advisors.

The authors find that the capital budgeting practices of Korean firms are as strong as or stronger than firms in developed markets. A majority of Korean firms use best practices techniques such as NPV, IRR and the CAPM for project evaluation and cost of equity estimation. Chaebol affiliation results in somewhat stronger capital budgeting practices. The authors also find that other factors, such as company size, leverage, CEO age and CEO education, impact capital budgeting practices.

This paper is the first article that comprehensively examines Korean firms' capital budgeting practices.

The capital asset pricing model has fundamentally changed the way finance is taught and practiced since its development in 1964. However, one problem with the use of the model is estimating the systematic risk of untraded assets. Academics and practitioners have dealt with the problem by using traded assets as “proxies” for the untraded asset. Some academic research has attempted to measure the validity of this technique using the average difference in the true beta of a traded firm and the “proxy” beta using a sample of similar firms. The paper aims to discuss these issues.

However, the use of the average difference across a number of comparisons is not necessarily useful to a practitioner. This paper examines the absolute difference between a firm’s unlevered beta and a proxy beta calculated using the formula given in Hamada, 1972, and the pure play method.

The authors find that the estimates are not reliably close to the true value. Using both deciles of relevant variables and a matching method similar to that used by practitioners, the authors examine a variety of different characteristics to identify similar firms.

However, the authors do not find any matching criteria that improves the absolute error of the estimate to a level, the authors believe would be acceptable to practitioners attempting to measure cost of equity capital for their untraded firm or asset. The authors conclude that managers should use pure play estimates of asset beta with caution. More research should be done in order to identify a better way for managers of untraded firms or assets to proxy their systematic risk.